Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Houlihan Lokey Bumps the GCA Offer - A Whopping 1.3%!!!

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/gca-savvian-corp" target="_blank" data-smartkarma-citation="entities:3841:1" rel="noopener">Gca Savvian (2174 JP)</a> was a business formed in 2004 and listed in Tokyo on the MOTHERS exchange in October 2006. In March 2008 it merged with US M&amp;A boutique, and remained listed in Tokyo. In July 2016, the company absorbed Europe-based Altium Corporate Finance Group and in April 2020 acquired Stella EOC in Northern Europe. Over time, the business has grown so Japan is now but a third of revenues, and in the past 12 months, the firm has booked JPY 34.2bn in revenues. The company has grown and grown and while 2020 was a trying year, 2021 is bouncing back. Re-booming in fact. Today, the company reported <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166089/00.pdf" target="_blank" rel="noopener">Q2</a> and <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166088/00.pdf" target="_blank" rel="noopener">H1 results</a>, and an <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166091/00.pdf" target="_blank" rel="noopener">increase in forecast</a> from the last time a forecast was released (just two months ago on 2 June). Full year revenues are expected 14.7% higher than originally and nearly double last year. Full year OP is expected 17% higher than the previous forecast and more than double last year. Net Profit is forecast at 17.2% higher than the last forecast and 117% higher than last year, all on a non-GAAP basis. On an IFRS basis, all those gains are a percent or two higher.The other news was that US niche investment bank <a href="https://www.smartkarma.com/entities/houlihan-lokey-inc" target="_blank" data-smartkarma-citation="entities:1744:1" rel="noopener">Houlihan Lokey (HLI US)</a> announced a <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166093/00.pdf" target="_blank" rel="noopener">deal</a> to take GCA private in a Tender Offer - a friendly deal <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166092/00.pdf" target="_blank" rel="noopener">recommended</a> by management - at ¥1380/share. This is at a decent premium to recent price, but at ¥1380/share it is just ¥1000/share after one converts the options and deducts the net cash (cash minus other current liabilities, which are far larger than debt). That is 12x 2021 company forecast EPS. That may not be that generous if there are synergies to be had. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/221/948/original/Screenshot+2021-08-03+at+7.23.23+PM.png?1627989828" class="editor-image img-responsive" data-smartkarma-image-id="221948"></figure></section>Of course, the investment banking and advisory business is not unlike the advertising business (and I am sure many of the readers here will agree from their own perspective. There are not a lot of hard assets in investment banking and as the principals will tell you, the best assets walk out the door at the end of every day. So assigning earnings multiples is something of a hit and miss situation. That said, concluding that a growing business (with a low cost base, high variable cost ratio, and minimal capital needs) in a growing market is worth only 12x earnings, on an un-levered basis, including control premium strikes me as aggressive, and the bump described on p9 of the <a href="https://ssl4.eir-parts.net/doc/2174/ir_material3/166092/00.pdf" target="_blank" rel="noopener">Opinion</a> tells you that Houlihan Lokey is looking for a deal, and GCA was too - they asked for a bump given upgraded forecasts (which themselves are a bit light for H2) and HLI paid 2.5x the marginal improvement per share. The other issue is that we don't know what deals that a purchasing investment bank could make with its future employees which could allow the purchasing employees to be favourable to such an acquisition. Critics could suggest we are closer to the top of the cycle than the bottom for investment bank earnings, but downturns create their own opportunities when you are not a capital provider, and HLI and GCA have financial restructuring teams.More below the fold.

Gca Savvian (2174 JP) was a business formed in 2004 and listed in Tokyo on the MOTHERS exchange in October 2006. In March 2008 it merged with US M&amp;A boutique, and remained listed in Tokyo. In July 2016, the company absorbed Europe-based Altium Corporate Finance Group and in April 2020 acquired Stella EOC in Northern Europe. Over time, the business has grown so Japan is now but a third of revenues, and in the past 12 months, the firm has booked JPY 34.2bn in revenues. The company has grown and grown and while 2020 was a trying year, 2021 is bouncing back. Re-booming in fact. Today, the company reported Q2 and H1 results, and an increase in forecast from the last time a forecast was released (just two months ago on 2 June). Full year revenues are expected 14.7% higher than originally and nearly double last year. Full year OP is expected 17% higher than the previous forecast and more than double last year. Net Profit is forecast at 17.2% higher than the last forecast and 117% higher than last year, all on a non-GAAP basis. On an IFRS basis, all those gains are a percent or two higher.The other news was that US niche investment bank Houlihan Lokey (HLI US) announced a deal to take GCA private in a Tender Offer - a friendly deal recommended by management - at ¥1380/share. This is at a decent premium to recent price, but at ¥1380/share it is just ¥1000/share after one converts the options and deducts the net cash (cash minus other current liabilities, which are far larger than debt). That is 12x 2021 company forecast EPS. That may not be that generous if there are synergies to be had. Of course, the investment banking and advisory business is not unlike the advertising business (and I am sure many of the readers here will agree from their own perspective. There are not a lot of hard assets in investment banking and as the principals will tell you, the best assets walk out the door at the end of every day. So assigning earnings multiples is something of a hit and miss situation. That said, concluding that a growing business (with a low cost base, high variable cost ratio, and minimal capital needs) in a growing market is worth only 12x earnings, on an un-levered basis, including control premium strikes me as aggressive, and the bump described on p9 of the Opinion tells you that Houlihan Lokey is looking for a deal, and GCA was too - they asked for a bump given upgraded forecasts (which themselves are a bit light for H2) and HLI paid 2.5x the marginal improvement per share. The other issue is that we don't know what deals that a purchasing investment bank could make with its future employees which could allow the purchasing employees to be favourable to such an acquisition. Critics could suggest we are closer to the top of the cycle than the bottom for investment bank earnings, but downturns create their own opportunities when you are not a capital provider, and HLI and GCA have financial restructuring teams.More below the fold.

Houlihan Lokey To Take Out GCA :  Light But Likely Done

GCA Corporation

Houlihan Lokey To Take Out GCA : Light But Likely Done